United States v. Lillard

ORDER DETERMINING LOSS AMOUNT, RESTITUTION AND OTHER
SENTENCING ISSUES

RICARDO S. MARTINEZ, CHIEF UNITED STATES DISTRICT JUDGE

I.
INTRODUCTION

The
defendants, Lonnie Eugene Lillard and Nathaniel Wells entered
pleas of guilty to a single count indictment charging them
with conspiring to commit bank fraud in violation of Title
18, United States Code, Sections 1344 and 1349. Dkt. 53 at
1-2. Two other co-defendants, Melissa Sanders and Erin Terril
Wiley, were also charged in that same indictment and both of
them also entered pleas of guilty. Ms. Sanders is awaiting
sentencing while Mr. Wiley has already been sentenced. Mr.
Lillard and Mr. Wells entered their guilty pleas without the
benefit of a plea agreement. Dkt. 112, 114. They stipulated
to no facts relevant to sentencing except with respect to
asset forfeiture. Both defendants Lillard and Wells contest
the government's calculation of the loss amount,
restitution and their specific role in the conspiracy.
Accordingly, the Court held an extensive evidentiary hearing
consisting of the testimony of several witnesses and
thousands of pages of admitted exhibits from the government
as well as from the defendants. This order resolves the
outstanding sentencing issues for both Mr. Lillard and Mr.
Wells.

In this
case, based on the facts contained in the plea agreements and
the presentence reports of co-defendants Wiley and Sanders,
as well as the evidence presented during the evidentiary
hearing, it's clear the object of this conspiracy was to
obtain funds by using point-of-sale (POS) terminals
reprogrammed with misappropriated merchant identification
numbers without the authorization of the merchant. The
co-defendants and unindicted co-conspirators, used the POS to
process fraudulent refunds from merchants and load the funds
onto debit cards, gift cards, and other instruments issued by
banks and retailers. The defendants and co-defendants would
then use these prepaid instruments to withdraw cash from
various banks and automatic teller machines. In addition to
withdrawing cash from banks and ATMs, the conspirators
converted the credits to funds by using the fraudulently
loaded cards to purchase money orders and precious metals, to
buy goods and return them for cash, and through other means
of converting the credits to cash.

To
facilitate the scheme, the conspirators used a portable POS
machine, a digital device that scans debit, credit, and gift
cards, to process purchases and returns. POS terminals are
typically found next to a merchant's cash register and
are programmed with information unique to that merchant
(merchant ID). To conduct a purchase or refund transaction,
the card is “swiped” through the POS terminal
which in turn transfers funds from the customer's account
to the merchant account during a purchase, or from the
merchant to the customer account in the case of a return or
refund.

A
merchant ID is a unique identifier assigned to a business or
other entity to process debit and credit transactions. The
merchant ID is programmed into a POS terminal to identify the
associated retailer or business to which the transactions
should be associated. If a business has multiple locations
and retail outlets, there may be hundreds of merchant
ID's associated with that business. When there are
multiple merchant ID's, it's a common practice to
assign sequential merchant ID's to the business's
outlets. Some merchants print their merchant ID on customer
receipts and therefore, merchant ID's can be directly
obtained or easily guessed.

During
the course of the conspiracy, between July 2014 and January
5, 2016, the conspirators used one or more reprogrammed POS
devices to process fraudulent returns. As testified to by Ms.
Sanders and unindicted co-conspirator Mikah Quinn, defendant
Lillard would travel to various hotel or motel rooms and
other locations, with a binder full of credit, debit, and
gift cards, and program the POS terminals to process numerous
fraudulent returns, often for hours at a single location.
This fraudulent activity created three categories of victims;
individual merchant retailers, credit processing companies,
and individual banks.

The
Court heard the testimony of several law enforcement
witnesses including;

1. Kevin Brennan, F.B.I. Special Agent in charge of this
case,

2. Derek Hill, F.B.I. Task Force member,

3. Kiersten Rogowski, F.B.I. Special Agent,

4. Brian Snead, F.B.I. Forensic Accountant, and

5. Keith Evans, Bureau of Prisons, Intel Operations
Specialist.

Additionally,
two civilian witnesses testified, codefendant Melissa Sanders
and unindicted co-conspirator Mikah Quinn. The defendants
declined to testify and did not call any witnesses. While
each of the witnesses was cross examined, often extensively
by the defense, there was no conflicting or contradictory
evidence raised by cross examination that the Court finds
material to deciding the issues of loss amount, restitution
or role in the offense. The Court thereby fully credits the
testimony of each of the witnesses, finding it to be truthful
and credible. The Court references specific testimony of a
particular witness where appropriate in this order.

II.
SENTENCING ISSUES

A.
Loss Amount

The
United States Sentencing Guidelines provides that a
conviction for Conspiracy to Commit Bank Fraud has a base
offense level of seven. USSG § 2B1.1. Additionally, the
Guidelines provide for an upward adjustment to the base
offense level if the amount of loss exceeds $6, 500; the
amount of the upward adjustment depends on the amount of the
loss. USSG § 2B1.1(b)(1). In determining the loss
amount, the Court is to determine the greater of actual loss
or intended loss. “Actual loss” is the reasonably
foreseeable pecuniary harm that resulted from the offense.
“Intended loss” is the pecuniary harm that the
defendant sought to inflict even if it includes harm that
would have been impossible or unlikely to occur.

In
determining the loss amount the Court need not be exact, but
may make a reasonable estimate of the loss. USSG §
2B1.1, cmt. 3(C). And, when calculating loss amount in a case
where the defendant participated in jointly undertaken
criminal activity such as a conspiracy, the Court is to
consider all acts of others that were “(i) within the
scope of the jointly undertaken criminal activity, (ii) in
furtherance of that criminal activity, and (iii) reasonably
foreseeable in connection with that criminal activity,
” whether the acts occurred during, in preparation for,
or in attempting to avoid detection or responsibility for the
offense. USSG § 1B1.3(a)(1)(B). In making its
calculation the Court is free to consider all relevant
factors such as the approximate number of victims, the
average loss per victim, the scope and duration of the
offense, and the revenues generated by other conduct. USSG
§ 2B1.1, cmt. 3(C). Further, where unauthorized access
devices are involved, loss can also be calculated per access
device, in an amount no less than $500 each. USSG §
2B1.1, cmt. 3(F)(i).

The
victims of this conspiracy were credit processors (payment
processors), banks and individual merchants. In calculating
the loss amount the Court is mandated that it must never
“double count” any specific loss. The Court
thereby proceeds cautiously, and conservatively, when
examining the government's evidence of actual or intended
loss. The testimony showed that the five individual payment
processing companies shouldered the vast bulk of the losses
from this scheme by making the majority of individual
retailers, who utilized that specific payment processor for
their transactions, whole after discovering the fraud. Some
of these payment processors are wholly owned by other
financial institutions. For example, Chase Paymentech is a
wholly owned subsidiary of JP Morgan Chase. However, for
purposes of this order, the corporate structure is not
relevant and the Court will refer to these five institutions
as payment processors. Therefore, although there was
testimony that some individual merchant retailers also
suffered losses and some failed to report some of their
losses, in calculating loss amounts the Court focuses on
those five payment processors, Vantiv, Chase Paymentech,
First Data, Green Dot, and INCOMM, as the most impacted
victims.

1.
Actual and Intended Loss

a.
Vantiv

Vantiv
is a payment processor that fell victim to the scheme of this
conspiracy. Vantiv provided five spreadsheets setting out
each of the transactions, both successful and unsuccessful,
that were determined by Vantiv to have occurred as a result
of activity by these conspirators during the relevant time
frame. In reviewing the testimony as well as the exhibits
received in evidence during the hearing, the Court's
primary concern was that the government bore the burden of
establishing that the claimed victim losses were, in fact
attributable to the actions of the conspirators and that
there was no ...

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